THE FEDERAL BUDGET: Incentives; Businesses Want Broader Measures for Research

By ANDREW POLLACK,

Published: January 31, 1992

SAN FRANCISCO, Jan. 30—
President Bush's proposed budget contains several notable incentives to spur research and development and improve the nation's competitiveness, many executives said today. But it stops short of the full-fledged effort that many business leaders say the nation needs.

The budget would increase Federal research and development expenditures, particularly for nonmilitary research in such areas as computers and biotechnology. There are also some tax incentives for industrial spending on research and new equipment, but experts say these measures would have only a modest impact.

Some executives said, however, that by increasing Federal research and development for civilian technology the Bush Administration seems to be softening its ideological resistance to helping particular industries.

"We see signs of making sure the Federal R & D budget supports industrial competitiveness," said Daniel F. Burton Jr., executive vice president of the Council on Competitiveness, a Washington lobbying group.

Under the President's proposal, which requires Congressional approval, overall Federal expenditures for research and development would total $76.6 billion, an increase of 3 percent from the year before.

Civilian research and development would increase by 7 percent, making up 41 percent of overall research spending in the fiscal year 1993, up from 39 percent in 1992 and well above the level during the years of the Reagan military buildup. Industry executives have long complained that too much Federal research spending goes to arcane military uses with potential few commercial spinoffs.

The budget also includes increased support for the Commerce Department's Advanced Technology Program and a new "critical technology" program, both of which the Administration had not supported in the past, Mr. Burton said.

"They are moving a little bit in the direction of technology policy," said John Mancini, senior vice president of the American Electronics Association. But he added, "It's a good first step but not enough in the long run."

Indeed, some executives said they were disappointed that President Bush, in his State of the Union address Tuesday, made little mention of competitiveness. Instead, he seemed to dwell on spurring home building, which would create new jobs but not help the nation in foreign markets.

Among the specific tax incentives the President proposed, executives said that by far the biggest boost could come from a cut in the capital gains tax to 15.4 percent from 28 percent for investments held at least three years. That could particularly help start-up companies that are backed by venture capital.

But such a cut in the capital gains tax has been repeatedly proposed by President Bush only to be derailed by Democrats in Congress who say that the benefits would fall mainly to the wealthy. This time, though, the President sounds more determined. And with the economy reeling, the Democrats might be more willing to go along.

Another proposed budget measure would make the research and development tax credit permanent. Companies would get a tax credit of 20 percent on increases in their research-and-development spending according to a complex formula.

Although the credit has been extended annually for years, making it permanent would end any uncertainty and provide an incentive for long-term increases in research and development, executives said.

But the tax credit will not benefit many companies in the development stage, particularly in biotechnology, because these companies do not yet make profits and therefore have no use for a tax credit.

"Is the R & D tax credit going to make me do anything differently?" said Roger Salquist, chief executive of Calgene, an agricultural biotechnology company in Davis, Calif. "The answer is no. It's just irrelevant."